With the elections less than two weeks away the Lithuanian Free Market Institute looks at some of the key points of the Social Democrat Party’s electoral programme and their significance.
© DELFI / Karolina Pansevič

Reduced expenses in state service

- 10% decreased expenditure to state services
The state apparatus does not contract even with a decrease in population size and the price of maintaining the gigantic apparatus continues to rise year by year. The number of employees in state service decreased by 1% over the past six years, compared to a population drop of 8% over the same period.

Expenditure cuts to state services would save tax funds which can then be redirected elsewhere. That said it is important that this would be a real decrease in expenditure, rather than just a change in employment terms.

Verdict: far-sighted policy – a recommendation with positive long term consequences.

Reducing the budget deficit – making promises into reality?

- Budget deficit decreased by stimulating employment and domestic consumption, rather than increased taxation

A surplus budget has been pledged year upon year. Furthermore there has yet to be a year without a tax raise. A growing economy and tax income is a good time to fulfill such pledges.

Verdict: far-sighted policy – a recommendation with positive long term consequences.

A more stable tax system – improved business environment

- Guaranteed tax system stability

An unstable tax system has continued to be a problem for Lithuanian businesses as planning becomes tough when the tax environment changes nigh every year. Furthermore with the Lithuanian tax system being seen as unstable, such instability is increasingly encouraging capital to leave Lithuania.

Verdict: far-sighted policy – a recommendation with positive long term consequences.

Reduced tax for small business – really?

- Newly created small businesses (turnover under €100 000) will only pay turnover tax (eg. 9%) which should reduce administrative burdens and encourage entrepreneurship.

The declared goal of reducing tax burdens on small business, replacing other taxes with a 9% turnover tax could have zero results. This is due to small businesses paying a 5% income tax in Lithuania. Not only the tariff, but also the tax base is larger with this suggested tax. Furthermore social insurance taxes based on incomes would most likely not be removed.

Verdict: a wolf in sheep’s clothing. Looks good initially, but has painful consequences.

Expensive food? Eat expensive ecologic! Marie Antoinette of the 21st century

- Kindergartens and schools to only use ecological produce in the food they provide students

The significantly higher price of ecological food will significantly increase expenditures for parents and/or tax payers. This could also negatively impact local farmers, who typically have regular farms, not ecological ones, hurting domestic agriculture. Furthermore produce from regular farms is fully suitable for consumption.

Verdict: expensive to tax payers – economically negative suggestion. Unmeasured, poorly calculated and difficult to implement.

Unemployment reduced to 5%

- Preparation and implementation of a multi-stage employment stimulation programme, which should increase unemployment below 5%

The state should encourage employment, but the current demographic and economic circumstances make a decrease to below 5% unemployment unrealistic. The last time such unemployment figures were observed was in the boom period of 2007.

Verdict: Unmeasured, poorly calculated and difficult to implement.

Lithuanian (Social Democrat) railways

- Defence of national interest by ensuring only the national carrier is allowed to perform transit cargo transportation by rail

This discusses the role of the state-owned Lithuanian Railways (LG). The European Commission has long warned that the company has a negative impact on competition in rail cargo transfers. This is something that major cargo carriers passing through Lithuania complain about as well. This statement obscures an intent to continue protecting LG from competition and the EU and Lithuanian industries from lower prices.

Verdict: a wolf in sheep’s clothing. Looks good initially, but has painful consequences. “Back to the past” – a return to a command economy.

Celebrating holidays

- State will fund traditional events (harvest festival, farmer of the year elections, Sartai race, etc.), as well as animal shows, children’s educational programmes

The LSDP included financing various traditional events with state funds into its programme. We doubt that this is of national importance. Such financing may not take a big chunk of the budget, but it forms poor practices, with the state organising events that could and usually are organised by communities themselves.

Verdict: “Back to the past” – a return to a command economy.

A tax garland

- More weight put on environmentally friendly taxes, while reducing taxation on labour

- Reduced labour taxation, progressive tax system to be put in place, taxation on luxury property
Labour taxation is a laudable move. If the tax-free minimum income size is increased, it will help the lowest income earners. But if the “property tax” turns into a vehicle or real estate tax, it could drop taxation on citizens from another direction instead.

The funds needed to purchase real estate and vehicles have been taxed already, so further taxation is unfair and encourages citizens to “eat” their income, rather than save it or purchase property.
“Environmentally friendly taxes” lacks specificity and furthermore will likely “land” on production or consumption related companies, which will end up making consumers pay.

The tax model presented does not actually reflect progressive tax. Furthermore individuals can have low income, but at the same time own luxury property (eg. Through inheritance), thus being unable to pay.

Verdict: a wolf in sheep’s clothing. Looks good initially, but has painful consequences. Unmeasured, poorly calculated and difficult to implement suggestion.

Unclear stance on cash

- Reduced cash usage in the market to encourage a rise in transparency

A statement that lacks clarity. If cash usage decreases on its own, for example due to the rising popularity of electronic payments, then this statement is pointless.

If sanctions and bans on cash usage are put in place, then the risk of individuals being forced to use paid means of payment arises. The prices of such services could increase with reduced competition, thanks to restrictions on cash usage.

Verdict: a wolf in sheep’s clothing. Looks good initially, but has painful consequences.

Volunteering = work?

- Active and proven youth volunteering should be identified as work

If this means that volunteering would contribute to pensions (or increases in pension size), then those who have not financially contributed to the pension system would earn. This does not fit long term tax payer interests, nor state pension system interests and causes unnecessary and unjustified pressure on public finance.

If this would mean mandatory payment for volunteering, this could prevent volunteering in companies and thus a blockage of career opportunities. Most importantly this clashes with the principles of free, unpaid volunteering.

Verdict: a wolf in sheep’s clothing. Looks good initially, but has painful consequences.

Encouraging collective agreements

- As part of flexible and socially responsible labour market policy, 25% increase to the size of collective contracts, expansion of dialogue between labour market participants

We agree that there is a need for flexible and socially responsible labour market policy. But why should collective contracts be expanded? After all it is a question for the employees of a company to decide, not politicians.

Verdict: a wolf in sheep’s clothing. Looks good initially, but has painful consequences. “Back to the past” – a return to a command economy.

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